Hat tip to Financial Armageddon and Immobilienblasen for this little bit of comic relief. Actually, it perfectly sums up the current wave of optimism in which good news is good news, bad news is good news, no news is good news, and insightful financial news is nonexistent. 
Internal Memorandum No. 8121b
ATTN: Employees of Goldman Sachs
We did it. Bottom of the ninth, down by three, bases loaded, and we cranked another grand slam to the moon. They may have shot Lennon, but nothing can kill the Beatles.
I admit things looked bleak for a minute there. We had to convert to a bank holding company and were forced to accept a taxpayer bailout. It felt un-American. Terribly unbanksmanly. But we accepted the money, knowing that we could magically weave it into a much larger mountain of money.
We had a few hard months there, didn’t we? They regulated our corporate jet so that we could no longer use it to fly from hole to hole on the green. Dave had to drain his money pool to half capacity. I stopped injecting gold into my blood. They don’t call it a recession for nothing. One day, we’ll look back on the year we received only five-figure bonuses and laugh.
Wanting to celebrate our renewed success is natural, but it’s important that we don’t go crazy here. Remember, ten per cent of the non-bank country is unemployed, and even those who are working have “real” jobs, where payment is proportional to the creation of a “product” or a “service.” Those poor bastards. So I ask that, in celebrating our raping of the stock market, we show restraint in the following ways:
Furthermore, to avoid drawing criticism from the press, this year the bonuses, expected to be comically large, will be distributed in blood diamonds, which can be easily concealed in a briefcase so it looks like we’re working.
I’d like to thank everyone who made this possible—for a second time. Respect to President Obama for keeping us in the green. Thanks to the big guy upstairs (me). And let’s not forget all the ordinary Americans, who, for some unfathomable reason, have refused to put us behind bars. We are literally taking money out of their wallets. Seriously, with these returns we are making Madoff look like a little kid with his hand caught in the cookie jar. Amateur!
Yours in money,
Lloyd Blankfein, C.E.O., Goldman Sachs
Thanks to D.D. for sending this one along.
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Your word is your bond; a deal’s a deal. We all learn these lessons well before we become adults and pursue various ambitions. Even bankers live by this credo, especially when they are on the collecting end of a contract. Now comes Ken Lewis and the Bank of America, looking the American people straight in the face while claiming a deal isn’t a deal without a signed contract. I’m referring to the U.S. government guarantee of the assets BAC assumed after acquiring Merrill Lynch. Negotiated in the dying light of the Bush administration in January of this year, BAC trumpeted the news during a press release on January 16, containing, among other things, an awful Q4 earnings report (see stories below). The assets receiving this taxpayer-funded backstop amounted to $118 billion. It cushioned the blow of the earnings report and helped buy BAC the time it needed to raise fresh equity (which it did in May).
Coffers replenished, Mr. Lewis and his behemoth bank are trying to claim there is now no need for this guarantee, and besides, no full contract was ever executed. BAC wants to renege on paying the $4 billion it owes the taxpayers for the backstop, line of credit, insurance policy, or whatever we want to call it. “We didn’t draw on it, so we don’t owe anybody anything” seems to be BAC’s defense. I wonder if a similar defense would work if I decided not to pay my insurance premiums this year because my house has yet to burn down. And yet, the Charlotte-based banking house Mr. Lewis helped build was indeed smoldering, if not on fire back in January when he agreed to the deal and announced the following:
“In view of the continuing severe conditions in the markets and economy, the U.S. government agreed to assist in the Merrill acquisition by making a further investment in Bank of America of $20 billion in preferred stock carrying an 8 percent dividend rate.
“In addition, the government has agreed to provide protection against further losses on $118 billion in selected capital markets exposure, primarily from the former Merrill Lynch portfolio. Under the agreement, Bank of America would cover the first $10 billion in losses and the government would cover 90 percent of any subsequent losses. Bank of America would pay a premium of 3.4 percent of those assets for this program.
“On a pro forma basis, this additional capital would boost the company’s Tier 1 capital ratio to approximately 10.70 percent.” (source: BAC press release, January 16, 2009)
Remember these reassuring words you sent zinging around the world, Mr. Lewis? You wanted everyone to know that Uncle Sam stood behind you and that Bank of America would be one of the government’s hand-picked survivors of the financial crisis. Your stock closed at $8.32 on January 15, the day before this press release. This lifeline helped you raise fresh capital and your stock closed today at $13.42 — a tidy gain of 61%. And now you say you owe us nothing for this help, even though you announced the payment terms in your press release? What are you trying to claim — that you are invoking some sort of Material Positive Change clause?
Your “no signed contract” defense won’t wash, either. As any lawyer will tell you, contract law is based every bit as much on what two parties promise to do and how they perform on those promises. A signed piece of paper simply memorializes the deal and helps fading memories should a dispute arise at a later date. As your press release so clearly shows, we all know the agreed upon terms. We the People performed in allowing our leaders negotiate on our behalf; We let you make the claim We were behind you; and you used this claim to help ward off the demons that sank companies like Lehman Brothers. We performed; you and your company benefited. That, my friend, is a contract.
But if you still are unclear as to what I’m talking about, let me give you an example that hits close enough to home for you to understand. When BAC issues a company a revolving line of credit or a standby Letter of Credit, BAC receives both an upfront fee and an annual maintenance fee — WHETHER OR NOT THE LINE OF CREDIT IS EVER DRAWN UPON. If a client tries to renege on paying these fees because the line isn’t used, you would take them to court and demand payment.
Isn’t it bad enough that your poor stewardship of one of America’s premier banking franchises contributed to the mess we now find ourselves in? The financial crisis has cost taxpayers trillions of dollars and cost millions of workers their jobs. You’ve kept your job, Mr. Lewis, so do yourself, your shareholders, and the American people a favor and pay up. It shouldn’t require a U.S. Congressman to tell you it’s the right thing to do. Bank of America’s founder, A.P. Giannini, hated Wall Street in part because of behavior like this. I’m guessing he would be appalled to see what you’ve done to what he used to call “the people’s bank”. For Mr. Giannini, a deal was most certainly a deal, and his word was always his bond. Care to reconsider now, Mr. Lewis?
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Good line from Niels Jensen in defense of hedge funds:
"If you prohibit private investors from investing in hedge funds which on average use 1.5-2 times leverage but permit the same investors to invest in banks which use 25 times leverage and which are for all intents and purposes bankrupt, then you either don’t understand the world of finance or you don’t want to understand."
Very good and balanced view of the real estate market. Good discussion of risks and an intelligent primer on how money is made in real estate. Video is about 27 minutes long.
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